Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

This is a classic retirement problem. You are 25 years old and hope to retire at 70 years old. You expect to live another 25

This is a classic retirement problem. You are 25 years old and hope to retire at 70 years old. You expect to live another 25 years while you're retired. During those 25 years that you're living in retirement, you'd like to be able to withdraw $13,500 EVERY month at the beginning of the month. You can earn an average of 7.2% in your ETF during the years that you're still working. But during retirement, you expect to be able to earn only 6%. You have 45 years before retirement, during which you can save. While you are working, you contribute money to your retirement fund at the end of each month. You have 25 years in retirement during which you are withdrawing money at the BEGINNING of each month.

a. How much must you have saved PRIOR to retirement, so that you can make your withdrawals DURING retirement?
b. How much must you save monthly DURING your working years to have accumulated the sum from a. above?

C. BINGO! You just won the lottery. Rather than making monthly payments into your retirement account, you've decided to make a single lump-sum payment into your retirement fund on your 25th birthday. What amount must you deposit at age 25 to have it compound monthly to have enough to fund the withdrawals during retirement? This sum continues to compound monthly and the interest rate earned prior to retirement is 7.2%.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Global Business Today

Authors: Charles Hill

7th Edition

0078137217, 9780078137211

More Books

Students also viewed these Finance questions

Question

Show enthusiasm for the position (but not too much).

Answered: 1 week ago

Question

Write short notes on Interviews.

Answered: 1 week ago

Question

Define induction and what are its objectives ?

Answered: 1 week ago

Question

Discuss the techniques of job analysis.

Answered: 1 week ago